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Upper Tribunal scrutiny of FCA's gate-keeper role

It is not uncommon for the FCA to raise concerns when dealing with an application for a firm's authorisation or an individual's approval. The Financial Services and Markets Act 2000 (FSMA) empowers the FCA to grant authorisations and approvals only if satisfied that firms will meet the statutory threshold conditions or that individual candidates are fit and proper. Consistent with this framework, where the FCA raises concerns, in practice it is for the applicant to address and allay those concerns before authorisation or approval is granted.

It is also not uncommon for there to be correspondence with the FCA about applications, and potentially even representations and interviews. However, applications are often withdrawn without proper scrutiny of the merit or basis for the FCA's concerns, or indeed of the evidence the applicant may have to allay them. This is often because applicants either do not have the appetite or do not have the resource to take on the FCA. This is not only deeply unsatisfactory, but it can also be damaging for the applicant firm or individual's standing with the FCA in relation to future applications. Cases that shine a light on this potentially problematic process are extremely rare and this makes the recent Upper Tribunal judgment in Abi Fol Consultingv. Financial Conduct Authority [2016] UKUT 49 (TCC) worthy of note.

In 2014, Abi Fol Consulting made an application for authorisation under Part 4A of FSMA. Its sole shareholder and director was Abiodun Ladele, who was also to hold various controlled functions. The FCA rejected Abi Fol's application on the basis that it was not satisfied Mr Ladele had acted or could be expected to act with probity and accordingly Abi Fol's compliance with the threshold conditions could not be ensured. The issue was that in 2010 Mr Ladele had been accused of committing fraud by abuse of position whilst employed by HSBC. Following an internal Bank investigation, he was dismissed and then prosecuted. However, crucially, in January 2012 Mr Ladele was acquitted. Whilst the reason is somewhat unclear, prosecuting counsel had informed the Judge that HSBC's failure to assist in providing evidence meant there was little prospect of conviction and the Judge had therefore allowed a verdict of not guilty to be entered.

It was after Mr Ladele's acquittal that Abi Fol sought authorisation. Mr Ladele was interviewed by the FCA and he made representations on the substance of the allegations against him. Ultimately, the application was rejected by the FCA's Regulatory Transactions Committee and then its Regulatory Decisions Committee. Taking an extremely unusual step, Mr Ladele appealed the RDC's Decision Notice to the Upper Tribunal.

The Upper Tribunal was faced with a fog of untested allegations. Mr Ladele sought to demonstrate that he was of good character and that the allegations made against him some six years previously were false. How the FCA was to approach the position was somewhat more complex. As noted above, in practice it is for the applicant to satisfy the FCA that it should use its statutory powers to grant authorisation or approval. The FCA is not ostensibly required to prove that the candidate does not meet the threshold conditions or that he or she is not "fit and proper". So, for example, in the case of allegations that have not been tested or proved in another appropriate forum, the FCA will reject an application initially without a full quasi-judicial testing of those allegations if it forms sufficient concerns that its statutory criteria are not met. A case of an individual resigning mid-investigation and then re-applying for approval at another firm is a classic case of an untested allegation. What was different about the Abi Fol case was that it came before the Upper Tribunal which meant that there was a contested hearing on specific facts. In those circumstances, the FCA plainly felt that it could not simply adopt a neutral gatekeeper type role. Instead, what it did was try to substantiate the old allegations against Mr Ladele almost as if it were the prosecuting authority. This was a difficult task, not least because of the paucity of evidence available.

Ultimately, the Upper Tribunal found neither compelling direct evidence nor circumstantial evidence against Mr Ladele and it was largely impressed with his testimony and character. It found on the "overwhelming balance of probabilities" that Mr Ladele had not committed the offence of which he was accused. The Upper Tribunal remitted the matter to the FCA to make the actual decision on Abi Fol's application for authorisation and to do so consistent with the findings it had made. On 4 April 2016 the FCA authorised Abi Fol.

What is interesting about this case is that the FCA felt it had to act as quasi prosecutor, which is a development of the role it inhabits in the earlier stages of an application. It is plain that there was argument in front of the Upper Tribunal both about the burden of proof and the standard of proof. However, the Upper Tribunal felt that the evidence was so strongly in favour of the applicant that it did not need to rule on those issues (nor on any associated human rights issues). This is regrettable. Clarity would have been helpful both for the regulators and for applicants. In the meantime, we are left without judicial guidance on the position. Applicants may however take some comfort that, even though the process to get there may be long, the Upper Tribunal will take a robust and fair look at the facts. It will be interesting to see whether the FCA will in turn treat untested allegations more forensically in the future when looking initially at applications.

Compare jurisdictions: Arbitration

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